Good day, and thank you for standing by. Welcome to the Atlantic Union Bankshares Third Quarter 2022 Earnings Conference Call. Please be advised today’s conference is being recorded. And I would now like to hand the conference over to your speaker today, Bill Cimino, Senior Vice President of Investor Relations. Sir please go ahead.

Thank you, Chris. Good morning, everyone. I have Atlantic Union Bankshares’ President and CEO, John Asbury; and Executive Vice President and CFO, Rob Gorman, with me today. We also have other members of our executive management with us for the question-and-answer period. Please note that today’s earnings release and the accompanying slide presentation we are going through on this webcast are available to download on our Investor website, investors.atlanticunionbank.com. During today’s call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliation to comparable GAAP measures, is included in the appendix to our slide presentation and in our earnings release for the third quarter of 2022. We will make forward-looking statements on today’s call, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statements. Please refer to our earnings release for the third quarter of 2022, and our other SEC filings for further discussion of the company’s risk factors and other important information regarding our forward-looking statements, including factors that could cause actual results to differ from those expressed or implied in any forward looking statement. All comments made during today’s call are subject to that Safe Harbor statement. At the end of the call, we will take questions from the research analyst community. I’ll now turn the call over to John Asbury.

Thank you, Bill, and thank you everyone for joining us today. Atlantic Union Bank delivered another solid quarter. We recorded upper single digit loan growth and more than funded it with double digit deposit growth on a loan quarter annualized basis. Net interest margin expanded considerably. Asset quality remains strong and we expanded our asset based lending effort. We are on track to hit our top tier financial targets in the fourth quarter of this year. I have consistently stated my belief that our operating philosophy of soundness, profitability and growth and that order of priority serves as well as we navigate the challenges and uncertainties of the ever changing operating environment. The Atlantic Union Bank is a story of transformation guided by a consistent but evolving strategy, and it remains committed to delivering on our strategic objectives. Before I dig into our results, I would like to comment on the macroeconomic environment and our primary operating footprint. Despite all of the uncertainty, Virginia traditionally has been a stable economic area and not one that is prone to big swings in either direction. The federal government has acted as both a significant catalyst and shock absorber to the Commonwealth economic engine. With that history, we expect the effects of any recession to be somewhat tempered in Virginia. Virginia’s unemployment rate has recovered to pre-pandemic levels ticking down to 2.26%, 2.6% in August from 3.0 in May, and remains below the 3.5% current national average. I interact extensively with our clients, the business community and teams and can report that anecdotally, we do not believe the gloomy headlines properly reflect the situation on the ground and our footprint. Right now our markets remain strong. The lending pipelines remain strong, and we still don’t see any near term shift away from the…

Thank you, John. Good morning, everyone. Thanks for joining us today. Now let’s turn to the company’s financial results for the third quarter. Please note that for the most part, my commentary will focus on Atlanta Union’s results on a non-GAAP adjusted operating basis, which excludes the $9.1 million pre-tax gain or $8 million after tax gain from the sale of the RIA business Cary Street Partners in the second quarter. There were no similar adjustments to the company’s adjusted operating results for the third quarter. In the third quarter reported net income available to common shareholders was $55.1 million and earnings per common share were $0.74 which is that approximately $4.2 million or $0.05 per common share from the second quarters reported net income available to common shareholders. Adjusted operating earnings available to common shareholders in the third quarter were 55.1 million and adjusted operating earnings per share was $0.74 up approximately $3.8 million or $0.05 per common share or an increase of 7% from the second quarter. Pre-tax, pre-provision adjusted earnings available to common shareholders holders in the third quarter were $73.4 million and $0.98 per common share, which is an increase of 11% from the second quarter. Adjusted operating return on tangible common equity was 17.2% in third quarter, which was up from the adjusted operating return on tangible common equity ratio of 60.5% in the second quarter. Adjusted operating return on assets was 1.15% in the third quarter which is up from 1.1% adjusted operating return on assets in the prior quarter. And the non-GAAP adjusted operating efficiency ratio was 54.1% in third quarter which was an improvement of 1.8% from the second quarter. During the third quarter, the company also generated significant positive pre-PPP adjusted operating leverage as pre-PPPE adjusted revenue of approximately 6% was…

Thanks, Rob. Now, I paused for a few questions, Chris, we are ready for our first caller, please.

Thank you. And first question will come from Catherine Mealor of KBW. Your line is open.

Good morning. I think I’m still you’re one of your only analysts. If you see someone else come in the queue let me know. And I’ll step out. But I’m just going to go with a bunch of questions for now. But I’d like to start first with the margin. The guidance you gave for next quarter and next year was really helpful. Just within that, can you give us an update of how you’re thinking about deposit data this quarter? I thought was actually pretty good. But it seems like you’re growing deposits pretty well as well. So just kind of curious how you’re thinking about deposit pricing in beta through the cycle.

Yes I think, Catherine good morning. In terms of the product betas, as mentioned through third quarter for this cycle to date, a rising rate cycle we’re about 12% or 80% deposit beginners, and on an interest bearing deposit basis we’re about 80%. As we report here, we continue to see the Fed continue to move Fed funds rate and market interest rates. Again, we’re looking at a 4.5% Fed funds rate by the end of this year through the cycle through this current rising rate cycle, we expect to be about 25% to 30%, beta all in the cycle until deposits in about 35% to 40% or so interest bearing deposits. Again, as we go through the cycle as we get through really next year, we think that’s where we’re going. So again, you should start to see the base accelerate as we see more competition, we haven’t really seen too much at this point in time. But we are, see the deposit rates have increased, which will come from a competitive position but also from a positive retention.

And just thinking about the balance which is deposit was really strong this quarter. would you -- also ups were there any special this quarter that really pushed that in or so would you expect kind of that pace of deposit growth to slow and maybe another kind of follow them as is where do you think you’ll see most of that growth? Do you really think we’ll continue to see a decrease end up in the balances? Are you really trying to push it in other categories?

Yes. So our projection is referring to in the 4% to 5% deposit growth kind of normalizing as we go forward here. But outside this quarter and 10 plus percent annualized. We did get some inflows from, as I mentioned, commercial client operating accounts, we expect that there will be some runoff of some of those will come down a bit. But overall, we’re looking at 3% to 5% deposit growth, which should help fund that loan growth that we are projecting. Of course, we have other sources of liquidity to make sure that we make up for any differences in the core funding of loan book growth. Some of that’s going to be we’ve got a pretty large investment securities portfolios we’ll let that run down. We’ll take some of the cash flows that come off of that which is about $16 million a quarter. We want to use that to shore up from a liquidity funding point of view. And then we also have some, that’s elevated cash at the end of quarter plus some of that as well. So that’s how we think about capital. Well, we don’t think we’ll be seeing double digit deposit growth going forward.

Yes, but I would add that we actually are continuing deposit growth momentum early in the quarter subject to change. And what’s interesting to me is that despite expectations, the deposit base is very strong and stable. We look back quartile at the consumer deposit base, for example, based on balances, it’s still higher than before the pandemic. It’s stable. It’s not declined. We continue to add net new consumer households in the retail bank, which is impressive given that we closed the quarter of the retail branch network since the pandemic began. And the deposit base in Atlantic Union Bank is the crown jewel of the franchise. I’ve said that since my arrival, and we’ve only expanded our capabilities is that we built this out built out our commercial banking efforts, etc. So Catherine, we know deposit growth is going to be a struggle, but it is a strength of this organization. And it’s not as if we were ever gave up our focus on it. We’ve only increased our focus on it. So we’ll see what happens.

And also on the consumer side, we did see a growth in -- was actually turned around the runoff, and see run off some of that manageable. But we’ve been running a few specials and received money coming through over the last quarter, two quarters. For instance, we’ve got a 13 month special, I think it pays 175 and 271 special, which is two in a quarter. So we’ll continue to do those sorts of things and make sure that we shore up the deposit base. Obviously, funding through the core relationship, client base is better than going to the whole.

We’re still 58% transaction accounts. Very impressive.

Okay. For sure. Okay, that’s a lot of great detail. And then going to the other side of the balance sheet on the loan side, the loan data, I thought was actually better to have I think 40% was the data I calculated. How are you thinking about loans, you can start with where you’re seeing new pricing come in? And is that 40%? Beta we saw this quarter is that translatable to the next few rate hikes that we expect to see?

Yes I think you’re right Catherine. That’s what our calculation do that over 40% on the pricing side. We do expect that that will continue at that level almost half our book of loans on the books is tied to short term rates whether that’s fine rate, or one month LIBOR. And now, increasingly, so as the short term rates continue to increase, and the Fed does its job here, increasing rates, you should see those betas remain at that point. Now, at some point, there may be some competitive pressures that would drive that down a bit. But we’re not seeing that at this point. There was just something at the pricing for a wholesale book or commercial book, the new regulations basically, from , Q2 to Q3 we basically see a variable and prime match the market rate changes in one month LIBOR and Fed funds. And also see pretty much again, this is the half the book variable and prime kind of looking almost north of 80%. And data is related to the market. So it is repricing very quickly on that front?

And then I was going to expense. The expense if we came into the quarter thinking that the annual expenses are going to be 390 to 395. And we came in a little bit higher this quarter, and then we’re guiding for flat neck. So I’m kind of rounding out at 398 for the year with that, and so just kind of curious what’s driving the higher near term expenses. And then you’re guiding for mid single digit growth for next year. Is there anything in the expense base for next year if revenue comes softer or longer if it’s after that you can be nimble and pull that back the revenue isn’t as high as you project?

Yes, that’s my job. I mean, we’re going through our detailed planning for 2023. We expect that what you guys just provided is where we will end up. But to the extent that you know, the revenue, the double digit revenue growth doesn’t materialize, we’ll dial back, we’ve got some opportunities to do that in terms of taking some expense growth off the table. We don’t think we’ll need to do that, at this point, we’re continuing to invest in the franchise. ABL investments is a good example of that, we’ll continue to do that going forward. And at this point in time, we’re really focused on generating positive operating leverage significant positive operating leverage, as the sensitivity benefits kick in for us. So we’ve got a number of projects underway in investment projects that will increase some expenses to that to the level and talk about budgeting there. At some point time, we’ll get benefits out of that and become more efficient and productive to do automation tools that we’re implementing. So that’s kind of the way we’re thinking about it at the moment. And wage inflation is real. That’s really what’s kind of ticking this up a little higher than we had originally projected, certainly coming into the year. And even coming out over the first half of the year.

We continuously evaluate the retail branch network. We may see opportunity there and incentive compensation is by definition variable. So we can make that anything that needs to be. So that’s how we think about.

Okay, very helpful and then the last one just on credit. I know we’re not seeing any signs of weakness yet. And so maybe my macro question to you is this Moody’s model is too sensitive to your assumptions around unemployment. And you said this, John, and we seem that Virginia’s unemployment rate has always been so much lower than the nation’s and so is that as we think about if unemployment starts to look worse, in just macro models, are you a little bit more protected, just because you kind of look more regionally at what your unemployment rate will be in Virginia specifically and that might put you in a better position for less kind of Moody’s macro upward risk versus some of your peers?

Yes Catherine, so yes, so as you mentioned unemployment we’re 2.6% here in Virginia is August September. So unemployment is a real sensitive variable on setting that allows the credit losses, as you know, and we do look at Moody’s and the baseline basis and then overlay more when we do a weighted scenario, including Moody’s baseline, so Moody’s baseline in terms of the Virginia unemployment, forecast goes into that equation. So if that goes up, you may see one, go up. I will say, though, that mention on my slide, mentioned in my comments specifically, but our Q3 allowance for credit losses, picked up three basis points. A lot of that had to do with increasing recession probabilities over the next two years expected over the next two years. And when we run that through a way to scenario, unemployment rate, picks up averages about 5.5%. So we’ve built in a very conservative at this point, we think conservative estimates there. So to make to get it to go higher than 5.5% we taken some real deep recessionary factors to be applied. So I think we’re pretty good in terms of that assumption, but we could we’ll continue to review it each quarter.

Yes, that’s super helpful.

But we do we do have some conservative assumptions regarding -- within our weighted scenario for the allowance currently.

Great. Thank you for all the commentary. That’s all I got.

Thank you Catherine and we appreciate all the questions from you and we believe that next quarter we’ll have more competition on the question line as we return to our full strength of analysts covering the bank. Thanks, everyone for joining us this quarter and talking with you in January. Have a good day.

This concludes today’s conference call. Thank you all for participating. You may now disconnect and have a pleasant day.